Institutional Investor's Alpha Magazine - July/August 2008 - (Page 15)

London-based HSBC Holdings bank, plans to open a similar fund later this year. Brazilian hedge funds are already a sizable force. According to Geneva, Switzerland–based Banque Safdié, which has an ofﬁce in São Paulo, assets under management in all funds in Brazil (both hedge funds and mutual funds) total $756 billion, up from about $370 billion in 2000. Hedge funds account for 21 percent of that, up from 4 percent in 2000. Safdié estimates that Brazil’s hedge fund assets will grow 25 to 30 percent a year for the foreseeable future. “These are innovative rule changes,” says Rodrigo Fiães, a Rio de Janeiro–based partner at Gávea Investimentos Gávea, which manages $6.2 billion in assets, recently raised $165 million for a hedge fund with 20 percent exposure to equities outside Brazil and $90 mil- lion for a fund with 100 percent foreign exposure. The new rules were issued by the Comissão de Valores Mobiliários, Brazil’s equivalent of the Securities and Exchange Commission. Qualiﬁed investors must put up a minimum of 300,000 reais ($187,000). Superqualified investors, who must meet a 1 million reais minimum, can invest in funds with up to 100 percent of assets outside Brazil. Ibrahim Hajjar, a partner at Credit Suisse HedgingGriffo Asset Management in São Paulo, says the country’s nascent hedge fund sector is trending up quickly. “It only started in Brazil ﬁve years ago and did not get going until 2005,” he notes. “During the past two years, we have seen up to ten quant funds set up, and they have performed very well during the past ten months.” — Jason Mitchell Love Lost T he historically cozy relationship between banks and hedge fund managers has come under strain as funds struggle with poor returns and banks, dealing with their own balance sheet problems, look to trim staff and curtail risk. The tension has created something of a boon for the boutique brokerage ﬁrms. In the meantime, banks have quietly increased their ties to the small hedge fund shops. “Current market conditions coupled with changes at the traditional brokers have created an opportunity for highly focused execution ﬁ rms to gain market share,” says Steven Starker, co-founder and head of institutional trading at BTIG, an independent broker-dealer headquartered in New York. BTIG has beneﬁted nicely from the trend. In just one day in March, as clients ﬂed the crumbling Bear Stearns, BTIG doubled its ﬂedgling prime brokerage business. Today it has about 170 prime brokerage accounts, and its institutional equity desk serves 1,000 or so accounts — the heart of BTIG’s business. BTIG, whose trading clients include the vast majority of the ﬁ rms listed in Alpha’s ranking of the world’s 100 biggest single-manager hedge fund operations, has seen its monthly volume of shares traded increase from approximately 1.5 billion in the ﬁrst quarter of 2007 to almost 2.75 billion in the ﬁrst quarter of 2008. When it comes to prime brokerage, many big banks, including market leaders Morgan Stanley and Goldman Sachs, are pushing some small hedge fund clients from their platforms. That beneﬁts boutique brokers like BTIG, New York–based Shoreline Trading Group and San Francisco–based Merlin Securities. BTIG has been busy building up an options brokerage arm and trading desk for hedge funds looking to outsource transactions. It isn’t the only one pursuing Illustration by Joshua Gorchov for Alpha such a strategy. San Francisco–based hedge fund administrator Conifer Securities recently snapped up Morgan Stanley’s third-party trading platform. (Sensing opportunity, Conifer has also made clear its intent to get into the small-brokerage space.) And Merlin now also offers outsourced trading. “Hedge funds are looking for independent, experienced traders with access to all markets,” says Ron Suber, the former manager of global clearing sales for Bear Stearns’ prime brokerage business who is now head of global sales and marketing at Merlin. “Sometimes they do not want to trade directly with the bigger houses,” “The independent ﬁ rms have the people with Relations have been better between banks and hedge funds, but bankers still like to invest in the industry. JULY/AUGUST 2008 • INSTITUTIONAL INVESTOR’S ALPHA • 15

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - July/August 2008

Institutional Investor's Alpha Magazine - July/August 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Mr. Big Goes Small The Good Guys: Adopt This School! Interview: Man's Great Hope Cover Story: The Gentleman Activist Strategies: The New Bankers Profile: Staying Alive Research Center: The Best of the East The Asian Sensations Alpha Bytes: Into the Light Unhedged: Commentary: Speculating on Washington

Institutional Investor's Alpha Magazine - July/August 2008

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